TMI Blog1962 (2) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary shares and 50 preference shares of Venkatesa Mills Ltd. on May 1, 1938, having paid ₹ 5,000. Rajapalayam Mills Ltd. allotted to the firm 100 preference shares as bonus shares on April 5, 1948, and June 10, 1948. Venkatesa Mills allotted 100 bonus shares on November 30, 1947. The funds with which the firm got allotted the shares in Rajapalayam Mills Ltd. and Venkatesa Mills Ltd. were taken from the Madras branch of the firm. At the time when these shares were acquired the firm was not a dealer in shares. From the year 1943 onwards the firm appears to have carried on business in the purchase and sale of shares at Poolankurichi. These shares which were held by the Madras branch were transferred to the account books of the headq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s-dealing at Madras. In the assessment year 1943-44 the firm denied that it was a dealer in shares and contended that the profit on the sale of certain shares during that year did not constitute business income. But ultimately the Income-tax Appellate Tribunal by order dated October 20, 1944, negatived that contention. That the firm was a dealer in shares and has been earning income from the business as share-dealer and has been paying tax on such income cannot now be seriously disputed. But this business activity in dealing in shares was the only feature at Poolankurichi, the headquarters of the firm. We must point out that there are no materials to hold that in the years 1936 and 1937 the firm conducted any share business either at its h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r original character as investments. It is quite clear that the department dealt with the case on the footing that the shares at their inception constituted only investment of capital by money-lending firm at Madras. The Appellate Assistant Commissioner in his order dated March 21, 1957, in the present case, after referring to the order of the Appellate Assistant Commissioner in respect of the assessment year 1943-44, wherein it was held that the firm had old shares as investments observes thus: This only at the most indicates that originally these might have been investments. Now the question is whether these capital investments in the shape of shares became converted into the stock-in-trade of the assessee's shares business comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in dealing with it. But evidence of such conduct must be cogent, clear and unequivocal, and it would be dangerous on the part of the taxing authorities to infer that a capital has acquired the character of stock-in-trade merely from the fact that the assessee had dealt with another capital stock as a trading commodity. The distinction between income and capital accretion has always formed a battle ground between the revenue and the subject, there being no hesitation on the part of either of them to take up extreme positions. An ordinary realisation of investment would be claimed by the department as profit resulting from an adventure in the nature of trade, while a plain sale of stock-in-trade of a business for gain would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being--Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme of profit-making? This dictum has been approved by the House of Lords and also by the Judicial Committee of the Privy Council in numerous cases and it has now acquired almost the force of a rule of law. A receipt is stamped with the character of income if it emerges out of a trading activity or scheme of profit-making. The mere fact that a pecuniary advantage is gained or derived will not by itself be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed the appeal and the company demanded a case. The High Court held that there was no evidence to support the Commissioners' decision. At page 484 Vaisey J. observes: First of all we have the definite finding that these shares were purchased in 1940, not with the intention of dealing in these stock and shares, but with the object of finding a permanent investment--or at least, the word 'permanent' is not used, but an investment of a portion of the company's reserves. Now, that finding of the Commissioners undoubtedly involves this: that that object and that intention must have been departed from, but there was no evidence to show how or when or by whom it was departed from, and I have the greatest difficulty in discov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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